​With the housing crunch in San Francisco, there has been a push to allow new residential units to be legalized in areas such as basements, storage areas and garages.  After extended political wrangling between Supervisors Peskin and Farrell earlier this year regarding the nature of an expanded program to legalize Accessory Dwelling Units (ADU’s), compromise was reached, and new legislation went into effect on September 4, 2016.

Previous legislation allowed legalization of ADU’s in District 8 (including the Castro and Noe Valley), and then in District 3 (including Chinatown and North Beach), but the program was not available in other Districts.  Under the new legislation, legalization is available City-wide in Zoning Districts permitting residential use, with the exception of RH1-(D) Districts, which are subject to separate State Law requirements.

What is Allowed

ADU’s, also known as in-law units, are defined as new dwelling units constructed entirely within the built envelope of an existing building in areas that allow residential use, or within the existing built envelope of an authorized auxiliary structure on the same lot, as it existed three years prior to application.

In buildings with four or fewer existing units, one ADU may be added.  In buildings with five or more existing units, there is no limit to adding ADUs as long as Planning and Building Code requirements are met.  Requirements for rear yard, parking, open space, and density may be waived by the Zoning Administrator, and exposure requirements may be reduced.

ADU’s requiring minor expansions in the building envelope are permitted where they are under cantilevered or column supported rooms, under decks that are no more than 10 feet in height above grade, or require infill into light wells if not visible from off-site and are against a blank neighboring wall. However, these expansions cannot encroach into the rear yard and do require neighborhood notification under Section 311 or 312, and, therefore, are subject to discretionary review by the Planning Commission.

An ADU is not to be constructed using space from an existing dwelling unit, and ADU’s in Neighborhood Commercial Districts and the Chinatown Community Business or Visitor Retail Districts may not reduce ground floor commercial space.  Moreover, buildings with recent evictions are excluded.  Therefore, individual properties should be evaluated for eligibility before owners dive in to the application process.

Rent Control and Sale

ADU’s added to rent control buildings are subject to rent control pursuant to a Costa Hawkins agreement with the City.  In addition, ADU’s are not eligible for short term rentals such as through Airbnb.

An ADU may be sold where it is added to a building, without an existing rental unit, that was already a condominium three years prior to July 11, 2016, and has had no evictions within the 10 years prior to July 11, 2016.  ADU’s added in buildings undergoing seismic retrofitting maintain eligibility to enter the condo-conversion program if one becomes available in the future.

Permitting

ADU permits require an intake through the Planning Department and an application fee.  However, they do not require neighborhood notification unless an expansion of the envelope is requested, as discussed above.  Childcare fees and any impact fees for the plan area will apply, and are due when the permit is issued.

With the significant increase in scope of the ADU program, the City has received numerous applications, and is likely to receive many more this fall and winter.   The City anticipates that processing will take four to six months, but delays in processing should be anticipated (additional applications such as neighborhood notifications, variances and conditional use permits will add more processing time).  If adding an ADU to a historic building presents challenges for your project, having a pre-application meeting with DBI can help you work through Code-compliant solutions prior to submittal.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

​A few weeks ago, the Planning Department staff released the new draft Urban Design Guidelines. This was a pretty comprehensive draft, and it’s not quite clear when the final version will be adopted. But it does seem to be a relatively significant effort and gives us an opportunity to talk about the state of design review in San Francisco from our perspective.

On the department website for the new guidelines, under the heading “Current Challenges,” the Department states that “at this time, the location, application, and relationship between existing design guidelines are not readily apparent to planners, the public, or project representatives. Some can be found in area plans in the urban design element of the general plan but they may be relatively unknown and inconsistently or rarely applied. A lack of organizational consistency in their regulatory role or authority maybe unclear, and they span the range from extremely strict to indirect, vague, or simply outdated.”  The staff goes on to explain that over the last couple of decades, at least one set of design guidelines, the Residential Design Guidelines, have been somewhat consistently applied.  Other various guideline documents and attempts at clarifying and reforming the process or providing clear design review guidance have not been so successful.

The 70 page draft currently circulating for public review is filled with details and new approaches, illustrations and examples, a new glossary of terms so that we can all be talking the same language.  It is organized into three general areas (Site Design, Architecture and Public Realm), there’s no question that serious effort went into this document.  Whether it will make any difference at all in how things work in San Francisco is another story because (1) it doesn’t appear to try and consolidate all of the other competing design guidelines staff has created over the years, and (2) doesn’t address what we believe is a serious procedural problem – that ultimate decision-makers (the Planning Commission) are rarely involved in design review at all.  With the exception of mega projects that get the occasional “informational hearing” to keep the Commission informed of design progress, the vast majority of projects are seen by the Commission only once: at the very end when they are asked to approve it.

To their credit, staff is clearly trying to create an “overarching document for design review throughout the City.”  But we need to keep in mind that there are already many different design guidelines that have been developed by Planning staff over the years: guidelines for formula retail design, guidelines for ground floor residential design, guidelines for industrial area design, guidelines for storefront transparency, guidelines for western SOMA design standards, guidelines for window replacement, guide to San Francisco green landscaping ordinance, standards for storefront transparency, guidelines for awnings canopies and marquise, design guide standards for bird safe buildings, and other neighborhood specific guidelines and zoning controls.  The point I am making as that while staff would like this to be an “overarching” and controlling document, it really cannot be because of all these other documents that are out there that still must be consulted.  Our concern is that this process will not result in consolidation or simplification: In one part of the document, staff confirms that “other specific plan area design guidelines or residential design guidelines may also apply depending on the zoning, location, building type, and scale of the project.”

From our perspective, the one big thing missing from this new effort is it does nothing to clarify or improve on the actual process of design review.  There is some reference to explaining how internal Planning Department staff design decisions get made.  The urban design advisory team (the infamous UDAT) is discussed a bit and their role in commenting on and participating in the design review process. But critically, the Planning Commission is nowhere to be found. The guidelines do make the statement that ultimately the Planning Commission must start adopting findings related to design review issues.  But the Planning Commission is still the final stop in the process (i.e. the approval), but has no role up until the moment that the project is placed in front of them for an up or down vote.

This problem is on regular display at the Planning Commission. You don’t have to attend too many planning commission meetings to see what we are talking about: an architect and project team have worked with Planning staff, possibly for years, and come up with a detailed nuanced design, supported by the staff and the developer team.  They arrive with pride on hearing day, only to find that upon presenting the project to the Planning Commission, the Commission doesn’t agree. And so then the mad scramble begins, to try to adjust the project to fit Planning Commission input that is coming in at the 11th hour. This can add weeks and months to a project and, considered objectively, doesn’t seem like the best way to go about things.

No matter how hard planning staff tries to give advice and guidance that results in well-designed projects, ultimately there are two tensions at play. First of course, is the subjectivity of all of this. Architecture is like art, everybody has a different opinion. I often times wonder how difficult it is to be an architect in the city, when every aesthetic or architectural decision you make is questioned by the planning department or the commission.  The other tension is the desire of the city to have the highest quality projects be produced, balanced against the developers need for an economically feasible project. The City is worried about value engineering, and the developer is worried about getting a loan.

These new guidelines give us an opportunity to discuss this important process issue.

It seems the most obvious way to improve the system is to do what other jurisdictions do – include the Planning Commission in early decision making points. Many cities have a design review committee made up of a portion of the Planning Commission. Developers in their design teams are required to go before these design review committees early in the process to get basic feedback from the body that will eventually be considering the project for approval. Why this has never happened in San Francisco is hard to explain. But no matter how many guidelines the staff gives us, until there is a process that includes the Planning Commission early on, developers and staff will continue to have projects that are sent back to the drawing board just at the moment they thought they were getting approved.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

​Last month, Governor Brown signed into law legislation creating a temporary density bonus program for commercial developments (“Commercial Bonus Law”) that includes an affordable housing component.   Sponsored by Assembly member Santiago (D-Los Angeles), the new law will remain in effect until January 1, 2022.

For qualifying projects, development bonuses must be mutually agreed upon by the local government and developer.  The bonuses available include:

* Up to a 20% increase in maximum floor area ratio, general plan intensity, and height;

* Up to a 20% reduction in minimum parking requirements;

* Use of limited-use/limited application elevators for upper floor accessibility; and

* Other exceptions to a zoning ordinance or other land use regulation.

To qualify under the Commercial Bonus Law, a commercial developer would have to enter into an “agreement for partnered housing” with a housing developer, identifying how the commercial developer will contribute to affordable housing.  The housing component of a commercial bonus project would not have to be 100 percent affordable.  Rather, a minimum of 15 percent of total units would have to be set aside for very low-income households or 30 percent for low-income households.

The Commercial Bonus Law allows for flexibility in the manner and location in which the affordable housing is provided.  A commercial developer may directly build the units, donate a portion of the site for housing, donate property elsewhere, or make a cash payment to fund the cost of an affordable housing project.  The affordable housing must either be on the site of the commercial project or within the boundaries of the local government of the commercial project, in “close proximity to public amenities including schools and employment centers,” and within one-half mile of a “major transit stop.”  Most of San Francisco is within one-half mile of a major transit stop.

The Commercial Bonus Law does not specify that some minimum number of housing units must be created to qualify for the bonus.  Presumably, that amount of housing produced would be the subject of negotiation between the developers and the local government.

This highlights an important–and unfortunate–distinction between the new Commercial Bonus law and the longstanding density bonus laws for residential projects (“Residential Bonus Law”).  The Residential Bonus Law contains clear, mandatory standards requiring local governments to give density bonuses and waive development standards that preclude construction of bonus units.  As well, developers are not required to seek changes in zoning laws or special approvals for the density bonus units and related waivers and concessions. They are simply entitled to them as a matter of law.

In contrast, the Commercial Bonus Law lacks straightforward, mandatory directives.  For example, though it states that localities “shall grant” bonuses to qualifying projects, implying a mandate, it then goes on to say that bonuses need to be “mutually agreed upon by the developer and the jurisdiction.”  It also does not specifically provide that zoning changes or other special approvals are not required to achieve the Commercial Bonus.  This means that individual projects trying to use the law may need to enter into development agreements or seek other special approvals.  This could, unfortunately, limit the utility of the new law in jurisdictions where development bonuses are controversial.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

 

​A recent California case illustrates the importance of clear indemnity clauses in leases to ensure proper apportionment of liability between landlord and tenant.  In Morlin Asset Management LP v. Murachanian, the Court of Appeal held that if a matter is not expressly and specifically covered in a lease indemnity, then there is likely no claim by the indemnified party in reliance on such indemnity, whether under equitable principles or under the lease itself (2 Cal.App.5th 184 (2016)).

In Morlin Asset Management LP, a carpet cleaner fell and injured himself on the stairs in the common area of a building.  He was at the building because he had been hired by the tenant (“Tenant”) to clean the carpets within the leased premises.  The carpet cleaner brought an action against the landlord (“Landlord”), as the owner of the building, for negligence and premises liability.  Landlord filed cross-complaints against Tenant for equitable indemnity (alleging any injuries to the carpet cleaner were caused by the tenant), apportionment of fault and express indemnity pursuant to the lease.  The lease required Tenant to indemnify Landlord for any matter “arising out of, involving or in connection with the use and/or occupancy of the Premises by lessee”. Landlord argued that this accident was within the scope of the broad indemnity language and Tenant should reimburse Landlord for any damages that Landlord had to pay to the carpet cleaner.  Tenant contended that this accident occurred outside the premises and thus was not covered by the terms of the indemnity.  The Superior Court agreed with Tenant and granted its motion for summary judgment. Landlord appealed.

On appeal, Landlord argued that the accident “arose from the tenant’s use of the suite” since it would not have occurred but for Tenant hiring the carpet cleaner to clean the carpets in the premises.  Landlord also pointed to a lease provision which exempted Landlord from liability for injury or damage to person or property “in or about the Premises”, as well as the rules and regulations of the lease which provided Tenant could not employ a contractor for work in the building without Landlord approval, which Tenant had not done in this case.  Though those lease provisions supported Landlord’s claim that Tenant had culpability in this case, the Court of Appeal noted that the lease contained a provision which gave the Landlord exclusive control and management of the common areas of the building (like the stairs), including the responsibility to keep the same in good condition and repair.  Therefore, Tenant had no control over the condition of the stairs, which were arguably in an unsafe condition.    

Regardless of the other lease provisions, Landlord stated that the Court should construe the indemnity language liberally in favor of Landlord as the promisee.  Landlord cited to case-law where California courts gave a broader interpretation to the language “arising out of” in various kinds of insurance provisions.  The Court of Appeal distinguished this argument and explained that in non-insurance agreements (like a lease), indemnity language must be clear, explicit and construed strictly against the promisee.  Therefore, when reviewing the language strictly, the Court of Appeal found that the connection between Tenant’s use of the suite and the accident in the stairwell over which Tenant had no control was too remote and not within the parties contemplation when they entered into the lease.

The Court of Appeal also reviewed Landlord’s claim for recovery under the premise of equitable indemnity.  A claim for equitable indemnity arises when one party has been ordered to pay damages to another party as a result of a third party’s wrongful acts.  The party ordered to pay damages then seeks recovery from the wrongful third party under principles of equity or fairness, rather than contract.  The Court of Appeal ultimately denied this claim citing to case-law which held that if there is an express contractual provision establishing a duty in one party to indemnify another, the extent of the duty must be determined from the contract and not from the independent duty of equitable indemnity.  Therefore, the indemnity language in the lease controls and governs the scope of what is covered, regardless of any fairness argument.

This case is an important reminder to ensure indemnity clauses in leases are clear, specific and cover all aspects of intended liability between landlord and tenant.  Otherwise, a party may believe they are being indemnified for certain matters in a lease due to broader language and find out they are not in fact covered when a third party makes a claim.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

​On September 15, 2016, the Planning Commission considered a Planning Code Amendment that would add new requirements for green roofs in construction projects. 

Currently, Title 24, which provides State standards for building energy efficiency, requires 15% of roof area of new buildings to be “solar ready”, which means 15% of the roof will be un-shaded by the proposed building itself and unobstructed by rooftop mechanical equipment.  Title 24 applies to all new residential and commercial buildings of 10 floors or less.  The Board of Supervisors previously supplemented the State law by requiring that the 15% of roof area set aside actually had solar panels installed on it.

The proposed ordinance would allow for an alternative to the solar panel requirement.  Under the proposed ordinance, between 15% and 30% of roof space on most new construction will be required to incorporate solar panels, living (green) roofs, or a combination of both.  If the living roof option is selected, the builder will be required to replace the otherwise required solar panels on a 2:1 basis (2 square feet of living roof for every 1 square foot of solar panels otherwise required.)

The City believes that green roofs such as grass and vegetation will reduce storm-water entering the sewer, reduce energy consumption, enhance biodiversity, sequester carbon, and capture pollution.  The City provides resources including a living roof manual, a living roof webpage, and a living roof map of San Francisco.  These resources are currently online at the following websites:

1. San Francisco Living Roof Manual

2. San Francisco Planning Department Living Roofs

With regard to the cost to the builder, the City believes that the one-time installation cost will be largely offset by the avoidance of one-time stormwater management equipment costs that would otherwise be incurred.  

San Francisco would become the first major U.S. city to impose such requirements on new roof tops.  The requirements will be implemented by the Planning Department. 

If the Planning Commission approves the proposed ordinance, it will forward it to the Board of Supervisors for further review and action.  The Planning Department will review proposed projects for compliance with the Better Roofs Ordinance in Preliminary Project Assessments.  Additional informational materials are planned to be provided in a Better Roofs Project Guide and a Zoning Administrator Bulletin for assistance with implementation and compliance. 

New Regulations on Signs

Also on September 15, 2016, the Planning Commission considered a proposed ordinance that would supplement the rules and restrictions regarding signs.  In general, Article 6 of the Planning Code allows identifying signs that serve to tell only the name, address and use of the premises upon which the sign is affixed.  All proposed signs are subject to approval by the Planning Department.  In general, new advertising signs and billboards are not permitted.  General advertising signs that received valid permits in the past are grandfathered, and must show the permit number, the name of the sign company, and the permitted sign dimensions on the sign.   

The definition of historic signs will be changed to include historic movie theater projecting signs and theater marquees, and any sign listed on or eligible for listing on the National Register of Historic Places, the California Register of Historical Resources, and any sign that is designated a City landmark or a contributor to a City landmark district, or is designated as significant under Article 11 of the Planning Code.  Historic signs are subject to their own separate set of regulations.   

The proposed ordinance clarifies that “vintage signs” are defined as signs that depict a land use, a business activity, a public activity, a social activity, a historical figure, or an activity or use that recalls the City’s historic past.   Such signs shall be allowed to be restored, reconstructed, maintained, or technologically improved only by conditional use authorization of the Planning Commission.  In general, such signs must be at least 40 years old.  

Once designated as a vintage sign, a sign may not be removed without conditional use authorization of the Planning Commission.  Similarly, a three dimensional vintage sign may be relocated to a new location only with conditional use authorization from the Planning Commission.  In some cases, vintage signs are required to be maintained on the property even if they advertise a business that left the property decades ago.  Historic signs, vintage signs, historic theater marquees, and historic theater projecting signs are generally exempt from the size and projection restrictions that would otherwise apply under the Planning Code.

San Francisco has eleven distinct special sign districts, each with its own specific sign restrictions, which are found in the San Francisco Zoning Maps designated SS01 and SS02.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

​As we return from the summer recess for the Board of Supervisors and Planning Commission, we recap three of the summer’s significant planning policy proposals: 

Central SoMa

On August 11, the Planning Department made a presentation at the Planning Commission regarding the long-awaited update to the Central SoMa Plan. In broad terms, the Draft Plan proposes to rezone a large portion of SoMa to allow for future residential and commercial development, while protecting production, distribution, and repair (“PDR”) uses.  The Draft Plan will increase height and FAR, and  allow for the production of significant office space and housing. It will also increase development impact fees, including a new Central SoMa Impact fee, and provide for a Mello-Roos Community Facilities District. The Plan Area is smaller than that originally proposed in 2013, now bounded by 2nd Street, 6th Street, Townsend Street, and an irregular border to the north generally south of Folsom Street east of 4th Street and Howard Street, Clementina Street between 4th and 5th Streets, and Natoma Street between 5th and 6th Streets.

The Draft Plan centers around the philosophy of “achieving neighborhood sustainability” through implementing regulations related to increasing affordable housing (targeting production of 33% affordable units), creating publicly-accessible open space, increasing environmental sustainability of sites, retaining neighborhood character, and protecting PDR uses. The Draft Plan has new bulk and “skyplane” controls that are applicable to new construction and significant additions.  The Draft Plan will include several “key development sites” that will receive significant height increases. Although those sites have been preliminarily identified, further information regarding additional requirements for the sites is expected to be released later this fall. 

Transportation Demand Management (TDM)

On August 4, the Planning Commission voted to recommend approval of the new TDM Program, which is expected to go to the Board of Supervisors in the fall. Under the Program, Development projects would be required to incorporate features that support sustainable transportation. It would bring together requirements currently found in different Code Sections, including those related to pedestrian conditions, automobile parking, bicycle parking, shower facilities, transportation marketing services, on-site child care, car share, unbundled parking costs, and on-site affordable housing, as well as new measures, to develop a comprehensive TDM program. 

Projects are currently being requested to prepare a TDM Checklist that contains many of the measures considered for the TDM Program, but the program is not yet a condition of approval. If adopted, the TDM ordinance would add a new Section 169 to the Planning Code that would apply to most projects proposing construction of more than ten dwelling units or 10,000 square-feet of non-residential space, as well as those proposing a change of use of greater than 25,000 square-feet. Projects would be required to submit a TDM plan with the first development application, choosing a combination of measures to meet the total points required for a project. The program would also require monitoring and reporting throughout the life of a project. The way the program is currently structured, in order to meet TDM requirements, many development projects would have to significantly decrease parking or increase affordable housing to achieve enough points for a qualifying TDM package. 

We will continue to track TDM as it moves towards adoption by the Board of Supervisors. In the meantime, many projects will be in a grey area in which TDM checklists (which may continue to change) are requested by the Planning Department during environmental review before the Program is actually adopted.  

PDR Replacement

In our June 27 update, we provided a summary of a PDR Replacement Program introduced by Supervisor Jane Kim that would require replacement of PDR, Institutional Community Use, and Arts Activity Use in many of the zoning districts in the City. On August 2, the Board voted to include the legislation on the ballot for the November 8 election, with Avalos, Breed, Campos Kim, Mar, Peskin and Yee voting yes, and Cohen, Farrell, Tang and Wiener voting no. 

The initiative will go to the voters with a few important changes from the legislation as originally introduced. The replacement requirement would no longer apply City-wide. Instead, it would be limited to the Mission, Eastern SoMa, Western SoMa, and, once adopted, Central SoMa plan areas. The initiative also now contains a grandfathering clause for project converting less than 15,000 square-feet that submitted on Environmental Evaluation Application by June 14, 2016 and a partial grandfathering clause for projects converting at least 15,000 square-feet that submitted an Environmental Evaluation Application by June 14, 2016 (the partial grandfathering reduces the replacement ratio to .4 square-feet required for each square-foot converted).

If approved, the following replacement amounts would be required for most projects: for SALI zoned property, one square foot of PDR, Institutional Community Use, or Arts Activity Use would be required for each square-foot proposed for conversion; for UMU, MUO or SLI zoned property, .75 square-feet would be required for each square-foot proposed for conversion; and for MUG or MUR zoned property, .5 square-feet would be required for each square-foot proposed for conversion.

It is not clear how much the voters will connect with a PDR replacement ballot initiative, in contrast with the strong voter support for the affordable housing initiative in the June election. If the initiative fails, we may see alternative PDR protection or replacement legislation coming from the Board. Moreover, under the current initiative, PDR replacement requirements may be changed by a two-thirds vote of the Board. Therefore, what PDR regulation looks like going into 2017 could be impacted by the makeup of the Board after November’s election.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

​This week in our pre-labor day update, we look at four very local tax issues that will be on the ballot in November.

Real Property Transfer Tax Increase (Proposition W)

The Board of Supervisors adopted a proposal sponsored by Supervisors Kim, Campos, Peskin, Mar, Avalos, and Yee to support a ballot measure that will increase the Real Property Transfer Tax on properties sold for at least $5 million. The Real Property Transfer Tax is currently imposed on any transaction that results in a “transfer” of real property in the City. The definition of a “transfer” is broad and includes certain transfers of corporate stock, partnership shares, or limited liability company interests, if the transfer would constitute a “change of ownership” under California law. If adopted, this measure would increase the Real Property Transfer Tax rate from 2% to 2.25% on properties with a value of at least $5 million and less than $10 million; from 2.5% to 2.75% on properties with a value of at least $10 million to less than $25 million; and 2.5% to 3% on properties with a value of at least $25 million. Approval of the initiative requires an affirmative vote of the majority of voters. 

The actual financial impact of the transfer tax increase would be limited. For real property sales of $5 million, the additional tax would be $12,500, and for sales of $10 million, the additional tax would be $25,000. However, the transfer tax rates were mostly recently increased in 2010 (by 0.5% for transfers of $5M or more and by 1% for transfers of $10M or more). Some property owners consider the further increase of transfer taxes to be yet another burden on property ownership and doing business in San Francisco.

City to Be Responsible for Maintaining Street Trees (Prop. E)

The Board of Supervisors proposed a charter amendment sponsored by Supervisors Avalos, Weiner, and Mar that would transfer the responsibility for the maintenance of trees growing within the public right-of-way, or “street trees,” to the City. Currently, a property owner whose property is adjacent to a street tree is responsible for that tree and the sidewalk areas adjacent to it. Current law provides that a property owner is liable for injuries or property damage that result from that owner’s failure to maintain an adjacent street tree or sidewalk. If approved by a majority of the voters, the charter amendment would transfer responsibility of and liability for the maintenance of street trees to the City, establish the Street Tree Maintenance Fund to pay for the maintenance of street trees, and require an annual financial set-aside for the Fund. No parcel tax is associated with this measure. If approved, the City’s responsibility of street trees would begin on July 1, 2017 and would include street trees planted before and after that date. The amendment includes a “safety valve” in that the Mayor has the authority to terminate the charter amendment before January 1, 2017 if there is not sufficient budget capacity to cover the maintenance obligations. This charter amendment is likely to be well received by all property owners, especially those homeowners that have difficulty funding expensive tree repairs.

SF Community College Parcel Tax (Prop. B)

The San Francisco Community College Board of Trustees submitted a ballot measure that will increase and renew the local control parcel tax. The existing annual tax, approved by the voters of San Francisco as Measure A during the November 6, 2012 election, is $79 per parcel and would expire in 2021. If this ballot measure is approved by at least two-thirds of voters, the parcel tax will be increased to $99 per parcel, commencing July 1, 2017 and expiring in 2032. The proceeds of the parcel tax may only be applied to specific programs, like “attract and retain community college teachers” and “Keep school libraries open.”

General Sales Tax Increase (Prop. K)

The Board of Supervisors adopted a proposal sponsored by Mayor Lee and Supervisors Farrell and Weiner to support a ballot measure that would increase the sales and use tax by 0.75% for 25 years. Currently, the combined state and local sales and use tax rate is 8.75%, but a portion of the state component will expire on December 31, 2016. If adopted by a majority of the voters, this measure would increase the combined sales and use tax rate in the City to 9.25%. The funds raised by this increase are expected to off-set the set-asides proposed in Prop. J on the ballot for the proposed Homeless Housing and Services Fund and the Transportation Improvement Fund.

While this sales tax increase may not directly impact real estate ownership, there is the perception that a further increase in the cost of doing business in San Francisco could dampen new investment and property values.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

​One of the significant land use policy shifts underway in San Francisco is regulation of Production, Distribution, and Repair (PDR) uses. PDR includes industrial and agricultural uses, ambulance services, animal hospital, automotive service station and automotive repair, wash and towing, arts activities, business services, cat boarding and kennels, catering service, commercial storage, livery stable, parcel delivery service, public utilities yard, storage yard, trade office, trade shop, and wholesale sales and storage uses. PDR uses can be found in many zoning districts, and are distinguished from PDR Zoning, which is a zoning category applying to a property as a whole that imposes a number of zoning regulations.

PDR regulation has been a major issue in the Mission Action Plan (MAP) 2020 process underway at Planning, which is expected to result in legislation establishing additional zoning controls related to affordable housing and PDR in the Mission in the next few years. Currently, the Mission Interim Controls apply to require project sponsors to provide information regarding elimination of PDR uses, but do not prohibit such elimination.

Despite the continuing policy discussion at the Planning Department and Commission, on June 14, Supervisor Jane Kim introduced a ballot initiative for the November election that would require conditional use approval for conversion of a PDR use. It would also require conditional use approval for conversion of an Institutional Community Use, which includes uses such as child care facilities, community and philanthropic services and religious institutions, and conversion of Arts Activity Use, which includes a range of arts uses. Between these three categories, a broad range of industrial, community and arts uses would be covered. 

The new regulation would require replacement of the displaced use on the same property or in the same plan area. In the SALI, PDR, C-3-G or M zoning districts, 100% replacement of the existing PDR, Institutional Community Use, or Arts Activity Use to be converted or demolished would be required. In the UMU, MUO, MUG and MUR zoning districts, 75% replacement of the existing PDR, Institutional Community Use, or Arts Activity Use to be converted or demolished would be required.  For all other zoning districts where PDR, Institutional Community Use, or Arts Activity Uses are permitted, 25% replacement of such uses to be converted or demolish would be required. 

Parcels zoned C-3-O or R, under the jurisdiction of the Port of San Francisco, or in Special Use Districts and Redevelopment Plan Areas would be exempt. In addition, the amount of replacement space could be reduced by required building entrances, maintenance, mechanical and utilities facilities, on-site open space, and bicycle facilities, but not by space used for non-car-share parking. Finally, as part of the conditional use process, the Planning Commission would have to consider the suitability of the replacement space for the use proposed for conversion. Projects that received final Planning Commission approval by June 14, 2016 would be grandfathered, but all projects in the pipeline would be subject to the requirements.

We will follow the legislative process as it unfolds this summer and fall. In the meantime, there has been increased pressure on developers to include PDR, community and arts space in buildings that historically have housed those uses. Therefore, whatever the specific zoning controls put in place, we are likely to see more projects that include a mix of residential, retail and PDR uses. 

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

​Yesterday, the Board of Supervisors’ Land Use Committee held a robust (some would say acrimonious) hearing on the Inclusionary Housing Ordinance’s trailing legislation.  A few important amendments were introduced and debated. Ultimately, the legislation was continued to the committee’s next hearing on April 25th and may be voted on by the full Board the following day.  We provide an overview of the hearing for you here, but recommend watching the hearing on www.sfgovtv.org for anyone who wants to see the action themselves.

For some background on where we stand, the charter amendment going to San Francisco voters in June allows the Board of Supervisors to adopt a new inclusionary housing ordinance, and sets “interim” rates until that new ordinance is adopted. Interim inclusionary percentages for projects adding 25 units or more would be set at 25% on-site/33% off-site/33% in-lieu fee.  At the hearing, sending this charter amendment to the voters, the Board also committed to adopting trailing legislation that addresses proposed projects in the development pipeline.  The legislation includes a number of different provisions which in broad strokes would increase affordability requirements based on when a project first filed its Environmental Evaluation Application, with some special rules and carve-outs based on factors such as a project’s proposed location and height.  That legislation was introduced a few weeks ago, went to the Planning Commission for review and comment, and then to the Board of Supervisors’ Land Use Committee yesterday. 

As the legislation is currently in flux, the following is subject to change prior to adoption.  Highlighting the Supervisors’ descriptions of some of the more important amendments:

1. Timing: Still at Committee. The legislation did not get sent to the full Board.  It was continued to next week by a 2-1 vote, with Supervisors Cohen and Wiener supporting the continuance and Supervisor Peskin voting against.  It may be at the full Board by April 26.

2. No More Full Carve-Out for Mission NCT.  Pipeline projects in the Mission NCT are no longer carved out of the legislation’s graduated increased affordability requirements altogether.  Instead, they will be treated similar to projects in the UMU and SoMa Youth and Family zones, with an additional affordability bump above the general graduated increase.

3. Projects with Environmental Evaluation Applications Filed before 2013.  Projects that filed Environmental Evaluation Applications before January 1, 2013 would be fully grandfathered from the trailing legislation and increased affordability levels proposed in the ballot initiative.

4. Special Affordable Housing Impact Fees.  Some areas have special affordable housing impact fees (such as Market-Octavia).  Projects paying these impact fees can also count them towards their inclusionary housing obligation, if they elect to pay the in-lieu fee. This would help offset the increased affordability for projects in these areas that decide to pay the fee.  

5. On-Site BMR Rental Projects.  Projects that have executed a Costa Hawkins agreement to provide on-site affordable rental units prior to the June 7, 2016 election would be completely exempt from the BMR increase. 

We will continue to monitor the progress of this trailing legislation.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

Planning Commission to Consider BMR Grandfathering Ordinance this Thursday

As we last reported, Supervisors Peskin and Kim have introduced “grandfathering” legislation at the Board of Supervisors that would reduce the 25%/33% BMR requirement set in June’s Charter amendment for projects that are not yet approved but have had an application on file since at least before January 1, 2016.  The Planning Commission will be considering the legislation this Thursday at noon in room 400 of City Hall.

As the details of the grandfathering legislation have been absorbed over the past few weeks, two things have become clear.  First, the legislation would modestly increase the on-site BMR rate from 12% to a range of 13%-14.5% for projects with environmental evaluation applications filed prior to January 1, 2016.  Second, there are sizeable “carve-outs” from this grandfathering for projects in the following categories:

– Located in the UMU zoning district and demolishing any existing PDR use;

– Located in the Mission Street NCT district;

– Located in the Youth and Family Zone Special Use District;

– Are 120 feet in height or taller (these projects would be grandfathered if providing BMR units on-site; the off-site and in-lieu fee options would not be grandfathered and rather subject to the 33% rate)

Planning Department staff has prepared a thorough analysis of the legislation, which can be found here:  http://commissions.sfplanning.org/cpcpackets/2016-003040PCA.pdf.  Staff also proposes a number of modifications to the legislation, including the removal of the carve-outs listed above.  These carve-outs would subject numerous projects to the increased BMR rates despite having an application on file for years just like other projects eligible for grandfathering.

We recommend members of the development community send letters or attend the Planning Commission hearing to support the elimination of these broad carve-outs.  The Planning Commission will vote on Thursday on what revisions to the ordinance to recommend to the Board of Supervisors.

Oakland Impact Fees Move Forward to Full City Council

Last week, the Community and Economic Development Committee of the Oakland City Council considered draft legislation to establish development impact fees in the City.  After a 2+ hour public hearing, the committee voted to send the proposal to the full City Council for consideration.  The following is an overview of the current proposal.

Residential Impact Fee 

The residential fee will differ in three different geographic zones of the city:  (1) Downtown/North Oakland and Hills, (2) West Oakland, and (3) East Oakland, as follows:

Somewhat different fees would apply to townhome and single-family home developments. An on-site affordable housing option is available to exempt projects from the bulk of these residential impact fees.  The exemption applies to projects that provide 10% of their units affordable to moderate income households (120% AMI), 10% of their units affordable to low-income households (80% AMI), or 5% of their units affordable to very-low income households (50% AMI).  Providing affordable housing at these rates will also qualify a project for the City’s density bonus program.

Non-Residential Impact Fee 

Non-residential impact fees would be phased in over the next five years.  The office fee will be phased in as follows:

Permit filed prior to July 1, 2016:  No fee

Permit filed July 1, 2016 – June 30, 2017:  $0.85/sf

Permit filed July 1, 2017 – June 30, 2018:  $0.85/sf

Permit filed July 1, 2018 – June 30, 2019:  $2.00/sf

Permit filed July 1, 2019 – June 30, 2020:  $2.00/sf

Permit filed July 1, 2020 or later:  $4.00/sf

The date a building permit application is filed after all planning approvals have been granted is the date used for applying the new impact fees.

The City Council is expected to take up the impact fee legislation in April.  We will continue to monitor the Oakland impact fee process as it moves forward to final approval.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.